Case law analysis: Steria v Sigma Wireless Communications: Notice provisions

Two questions that often arise in construction projects are: (1) what are the consequences of a failure to have issued a formal notice of delay (2) what form does the notice need to take to be valid?

The answer to both questions is that it depends on the specific words of the contract. Both questions were considered, among others, in the recent TCC case of Steria -v- Sigma.

The primary purpose of an extension-of-time provision is to preserve the employer's right to levy liquidated damages. Take away a mechanism to allow the time for completion to be extended for matters that are the responsibility of the employer, and then time and damages would become at large.

Contracts therefore generally include provisions that allow the contractor an extension of time in the event that progress or completion of the works is delayed by certain events. The contractor is usually required to give notice of the event. The answer to question 1 is that it depends on whether the requirement to give a notice is a condition precedent to the entitlement. If it is, then failure to give notice will mean the contractor will lose its right to obtain an extension of time.

In the 1978 case of Bremer Handelgesellschaft mbH -v- Vanden Avenne Izegem nv, the House of Lords said that a notice provision was unlikely to be a condition precedent unless it stated a specific time for delivery of the notice and said clearly that the rights would be lost in the event that the notice was not given.

For example, in accordance with clause 61.3 of the recently amended NEC3 form of contract, where the contractor wishes to notify a compensation event, it must do so within eight weeks of becoming aware of the event, failing which, the clause expressly states that the contractor loses its right to any change to the prices, completion date or a key date. This provision effectively provides that notice is a condition precedent to entitlement.

Growing trend

While there is a growing trend towards including this type of provision in construction contracts, most standard forms appear less onerous, requiring for example, in the case of the JCT SBC05 contract, that the contractor shall give a notice if and when it becomes reasonably apparent that the progress of the works is being or is likely to be delayed, and if the event is a relevant event and in the opinion of the architect it is likely to affect the completion date, then the architect is required to give a fair and reasonable extension of time. There are no clear time limits for the submission of the notice and there is no clear stated loss of right in the event of a failure to notify. So could this type of clause be a condition precedent?

The case of Steria -v- Sigma concerned a subcontract for a part of a computerised despatch system for fire services and ambulances in the eastern counties of the Republic of Ireland. The subcontract included clause 6.1, that said in terms that if by reason of any circumstances that entitle the subcontractor to an extension of time, the subcontractor is delayed then it shall be entitled to an extension of time for such period as may be justified "provided that the subcontractor shall have given within a reasonable period written notice to the contractor of the circumstances giving rise to the delay". The entitlement to an extension of time is therefore expressed as being contingent upon the issue of a notice by the subcontractor, but there is no clear timetable and no clearly stated loss of right.

Failure to notify

In Steria -v- Sigma, Sigma argued in relation to clause 6.1 that the word 'provided' imposed a clear and unqualified condition precedent. Steria argued, among other things, that clear words were required to deprive the subcontractor of its entitlement in the event of failure to notify, and that the clause provides no precise period within which to serve the notice.

Judge Stephen Davies concluded that the requirement to provide a notice within a reasonable time was clear enough, even though there might be scope for arguing what is a reasonable time on an individual basis. He observed that the ordinary language of the clause made the right to an extension of time conditional upon notification. He concluded that, in this case, the clause does operate as a condition precedent, even though it does not express a clear warning as to the consequence of non-compliance. He referred to such warning as legal 'boilerplate' in order to put the matter beyond doubt.

Liquidated damages

The judge also decided that the liquidated damages provisions would still apply even though non-compliance with clause 6.1 could allow Sigma, the main contractor, to recover damages for delay for which it was responsible.

In answer to the second question, the judge decided in this case that the notice must emanate from the contractor, so minutes of a meeting recorded by a third party will not suffice. He decided that the requirements of this clause did not require that the notice referred to a clause number or that it had to include an assessment of the delay. But to achieve its purpose, it did have to give notice that relevant circumstances had occurred and, secondly, that those circumstances had caused delay. Thus it would seem that progress reports prepared by the contractor could have sufficed as notice, provided such provides the basic information required of the notice provision.

Finally, even though the JCT notice provisions require that the architect is not required to award interim extensions of time unless the architect receives a notice, suggesting that on its own this provision may well be regarded as a condition precedent, the standard JCT contracts include a final review period that allows the architect to adjust the completion date by virtue of any relevant events whether or not they have been previously notified.

It remains to be seen how this might be interpreted in light of recent case law.

The case:

Steria Limited -v- Sigma Wireless Communications Ltd, TCC 15 November 2007.

The issue:

Whether notices are a condition precedent to entitlement to extensions of time.

The implication:

Where the ordinary language of the contract requires that a notice must be given to trigger the right to an extension of time, then it is possible that the provision of a notice emanating from the contractor stating what is required by the clause is a condition precedent to the entitlement even though non-compliance with notice provision may lead to the employer deducting liquidated damages for delay due to an event for which he may be responsible.